Artificial Intelligence (AI) adoption is steadily on the rise across various industries and sectors. Businesses are increasingly acknowledging the substantial potential of AI in fostering innovation and enhancing efficiency, resulting in a noticeable surge in the demand for AI-based solutions.
In the midst of the fervor surrounding AI, three behemoths, Microsoft Corporation (MSFT), Alphabet Inc. (GOOGL), and Amazon.com, Inc. (AMZN), look well-equipped to capitalize on the prevailing AI trend. However, before delving deeper into the fundamentals of these stocks, let's first comprehend the vast scope of AI.
A year after the public release of ChatGPT, the excitement surrounding AI still remains intense. Tech giants continue to invest billions in this technology, nations are stockpiling the essential chips for upcoming AI ambitions, and the discussions on the promises and challenges of generative AI persistently fuel debates in boardrooms and dining rooms worldwide.
Jeff Clune, a computer science professor at the University of British Columbia and a former research manager at OpenAI, said, “The stuff that AI can do now is just the beginning.”
Companies from diverse industries have enthusiastically embraced this AI wave, ushering in generative AI-powered chatbots, deploying AI assistants for efficient enterprise data management, and introducing AI services capable of generating images and videos.
The market for generative AI achieved a value of $10.50 billion in 2022 and is projected to exhibit a robust CAGR of 35.1% from 2023 to 2032, potentially reaching a staggering $208.80 billion by the year 2032.
Furthermore, Elon Musk, CEO of Tesla and SpaceX, asserted that AI holds the potential to emerge as the "most disruptive force in history."
The far-reaching impact of AI, propelled by technological advancements and strategic industry adoption, establishes it as a pivotal force molding the future landscape of innovation and efficiency across the global business spectrum. The global artificial intelligence market is projected to grow at an impressive CAGR of 37.3% spanning 2023 to 2030.
Thus, keeping the immense potential of AI in mind, let us dig deeper into the fundamentals of the featured stocks in detail:
Microsoft Corporation (MSFT)
One of the most popular and sought-after software companies, MSFT barely requires any introduction. It develops, licenses, and supports software, services, devices, and solutions worldwide. It offers services such as Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, Skype for Business, Skype, Outlook.com, OneDrive, LinkedIn, etc.
On November 29, MSFT and leaders from the United Nations revealed a collaboration aimed at empowering the UNFCCC to establish a novel AI-driven platform and a worldwide climate data hub.
This initiative aims to facilitate the measurement and analysis of global advancements in reducing emissions. The objective is to significantly streamline the validation and analysis process of climate data submitted by the 196 Parties participating in the Paris Agreement.
This collaborative effort comes at a pivotal time, coinciding with the gathering of governments at COP28, organized by the UNFCCC and the COP28 UAE Presidency. This gathering aims to assess the sluggish progress in meeting the climate goals outlined in the Paris Agreement.
On October 31, MSFT and Siemens strengthened their existing partnership by bringing the benefits of generative AI to industries worldwide. The initial phase involves the introduction of Siemens Industrial Copilot, an AI-driven collaborative assistant developed jointly to enhance human-machine interaction in the manufacturing sector.
Additionally, the integration of Siemens Teamcenter software for product lifecycle management with Microsoft Teams is set to streamline virtual collaboration among design engineers, frontline workers, and various teams spanning business functions, contributing to the development of the industrial metaverse.
The stock’s trailing-12-month net income margin of 35.31% is significantly higher than the 2.20% industry average. Furthermore, its trailing-12-month levered FCF margin of 23.10% is 181.6% higher than the 8.20% industry average.
For the fiscal first quarter of 2024, which ended on September 30, 2023, MSFT’s total revenue increased 12.8% year-over-year to $56.52 billion, while its gross margin improved 15.9% from the year-ago value to $40.22 billion.
The company’s net income and EPS rose 26.9% and 27.2% from the prior-year quarter to $22.29 billion and $2.99, respectively. In addition, its operating income came in at $26.89 billion, up 24.9% year-over-year.
The consensus revenue estimate of $61.03 billion for the second quarter (ending December 2023) reflects a 15.7% increase year-over-year. While, the consensus EPS estimate of $2.75 for the same quarter represents an 18.6% year-over-year improvement.
Moreover, the company has an excellent earnings surprise history, surpassing the EPS estimates in each of the trailing four quarters.
MSFT’s shares have surged 56.2% year-to-date to close the last trading session at $374.51.
MSFT’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Sentiment and a B for Stability and Quality. In the 44-stock B-rated Software - Business industry, it is ranked #12. Click here to see MSFT’s ratings for Growth, Value, and Momentum.
Alphabet Inc. (GOOGL)
Known for its pioneering internet-related services and products, GOOGL offers its various products and platforms internationally. It operates through Google Services; Google Cloud; and Other Bets segments. Its offerings include Android, Chrome, hardware, Gmail, Google Drive, Google Maps, Google Photos, Google Play, Search, and YouTube.
On November 7, Google Cloud and VMware, Inc. (VMW) revealed an expanded partnership to provide Google Cloud's AlloyDB Omni database on VMware Cloud Foundation. The partnership aims to empower enterprises by facilitating the modernization of their more complex databases and applications.
The solution presented by AlloyDB Omni and VMware Cloud Foundation allows customers to simplify PostgreSQL management, upgrade their existing databases, and expedite their journey into AI.
The stock’s trailing-12-month net income margin of 22.46% is 599% higher than the 3.21% industry average. Its trailing-12-month levered FCF margin of 23.81% is 211.8% higher than the 7.64% industry average. Also, GOOGL’s trailing-12-month Return On Common Equity (ROCE) of 25.33% is 643.8% higher than the industry average of 3.41%.
In the fiscal third quarter, which ended on September 30, 2023, GOOGL’s revenues increased 11% year-over-year to $76.69 billion, while its income from operations improved 24.6% from the year-ago value to $21.34 billion.
The company’s net income and EPS grew 41.5% and 46.2% from the prior-year quarter to $19.69 billion and $1.55, respectively. Furthermore, during the same period, its cash and cash equivalents amounted to $30.70 billion, up 40.3% compared to $21.88 billion as of December 31, 2022.
Street expects GOOGL’s revenue and EPS for the fourth quarter (ending December 2023) to increase 11.9% and 52.4% year-over-year to $85.11 billion and $1.60, respectively. Moreover, the company surpassed its revenue and EPS estimates in three of the trailing four quarters, which is promising.
GOOGL’s shares have gained 49.5% year-to-date and 45.9% over the past nine months to close the last trading session at $131.86.
GOOGL’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has a B grade for Stability, Sentiment, and Quality. Within the 57 stocks in the Internet industry, it is ranked #3. Click here to see the other ratings of GOOGL for Growth, Value, and Momentum.
Amazon.com, Inc. (AMZN)
E-commerce behemoth AMZN engages in the sale of consumer products and subscriptions through online and physical stores in North America and worldwide. It operates through three segments: North America; International; and Amazon Web Services (AWS).
On November 30, AWS revealed that Trip.com Group, a global provider of comprehensive travel services, has chosen AWS as its key cloud service provider. Under this multiyear agreement, Trip.com Group aims to elevate the travel experience for millions of travelers by utilizing AWS's established global infrastructure and cloud technologies.
The partnership is geared towards expanding Trip.com Group's global business, ensuring smooth customer experiences, and fostering innovation within the travel and hospitality sector.
In the same month, AWS revealed that LG AI Research (LG AI), the AI research hub of the South Korean conglomerate LG Group, introduced its AI image-to-text captioning solution on AWS.
This innovative captioning solution utilizes LG AI's EXAONE, a multimodal foundation model (FM) with 300 billion parameters. EXAONE is designed to generate more precise and pertinent content for a global audience spanning various industries such as advertising, fashion, and retail.
By leveraging the scalability offered by AWS, customers of LG AI, which includes consumer goods companies and marketing agencies, have the capacity to generate over 2,000 image captions per hour.
AMZN’s trailing-12-month cash per share of $4.80 is 108.1% higher than the industry average of $2.31. Also, its trailing-12-month asset turnover ratio of 1.21x is 21.8% higher than the industry average of 0.99x.
AMZN’s total net sales for the fiscal third quarter (ended on September 30, 2023) increased 12.6% year-over-year to $143.08 billion, while its operating income rose significantly from the year-ago value to $11.19 billion. Moreover, the company’s net income and EPS came in at $9.88 billion and $0.94, up significantly from the prior-year quarter, respectively.
Analysts expect AMZN’s revenue for the fourth quarter (ending December 2023) to increase 11.2% year-over-year to $165.85 billion, while its EPS for the current quarter is expected to improve significantly year-over-year to $0.76. Additionally, the company surpassed its EPS and revenue estimates in three of the trailing four quarters.
The stock has surged 75% year-to-date to close the last trading session at $147.03.
It’s no surprise that AMZN has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Sentiment and a B for Growth and Quality. Out of 57 stocks in the Internet industry, it is ranked #15.
In addition to the POWR Ratings we’ve stated above, we also have AMZN’s ratings for Value, Momentum, and Stability. Get all AMZN ratings here.
What To Do Next?
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MSFT shares were trading at $369.28 per share on Monday afternoon, down $5.23 (-1.40%). Year-to-date, MSFT has gained 55.35%, versus a 20.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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